If a principal residence is considered the ultimate personal tax shelter for some, then the vacation home is fast approaching a close second for many more.The recent run-up in the market value - and popularity - of second homes has helped solidify their place as a sound investment. The tax advantages make it even more worthwhile: mortgage and real estate tax deductions, rental exclusions and expense offsets on an annual basis, followed by ultimate disposition at primarily capital gains rates - or better, now that the rules are more clear for use of the personal residence exclusion and like-kind exchange deferral, singularly or in tandem.

While the 2004 American Jobs Creation Act recently put some brakes on the use of like-kind exchange treatment as a quick sidestep before taking the homesale exclusion, opportunities on the disposition side of vacation home ownership remain for those with the patience and flexibility to juggle the ownership and use rules properly.

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